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Why Michael Bloomberg’s Pro-Soda-Tax Ad Is Misleading

Former New York City Mayor Michael Bloomberg is helping to bankroll a television-commercial campaign in favor of proposed soda taxes in Oakland and San Francisco, known as Measure HH and Proposition V, respectively, which will appear on each city’s November ballot. You can’t miss the commercial if you live in the Bay Area, as it seems to air a thousand times a day on local TV stations. Unfortunately, from an economist’s perspective, the pro-tax commercial is misleading.

The Oakland and San Francisco soda taxes would charge soda distributors an additional one cent per ounce of soda they sell in each city (or $2.88 per case). The tax would also apply to the distribution of other sugar-sweetened drinks. The Bloomberg ad, which can be viewed below, says “it’s not a grocery tax, it’s a soda tax.” But this is not entirely true from an economics perspective.

There’s an important difference between the “imposition of a tax,” on the one hand, and the “incidence of a tax,” on the other hand. Imposition is where the tax is technically levied. Incidence refers to who really pays the tax (the tax burden), which is one of the most important questions regarding any tax. Every microeconomics principles textbook covers this topic.

It’s true that the soda tax is levied technically on distributors of sodas, but this is merely the imposition of the tax. Any cost increase to distributors because of the tax can be passed on by them to grocers who, in turn, can pass it on to their retail customers by increasing the retail price of any product or products they choose in their store. So the incidence of the tax—who really pays the tax—falls on grocery buyers, whether they drink sodas or not. The tax is also a regressive tax, meaning it would harm lower-income families disproportionately more than higher-income families. Bloomberg and the pro-tax crowd are misleading the public with the ad.

The ad ends with: “Didn’t anyone tell big soda it’s not nice to lie?” But it’s Michael Bloomberg and soda-tax advocates that are not telling the whole truth: grocery customers will face higher grocery bills as a result of the soda tax.

The soda tax is also akin to telling your child this: “Your classmate Lawrence is not drinking what we think he should. So it’s ok to steal money from Lawrence and all his classmates until Lawrence stops drinking bad things.” Hopefully no parent would tell their child this. Neither should this immoral and flawed logic be the basis of public policy. But it’s the logic behind Measure HH and Prop V. The lesson being taught by the pro-tax side is “It’s ok to steal, as long as you think you’re doing right by it.” Taxation is always theft; “legal” theft, but theft nevertheless. It’s taking money by force from others.